US: (1) In property and casualty insurance, the premium deposit required by the insurer on forms of insurance subject to periodic premium adjustment. Also called “provisional premium.” (2) In reinsurance, the amount of premium (usually for an excess of loss reinsurance contract) that the ceding company pays to the reinsurer on a periodic basis during the term of the contract. This amount is generally determined as a percentage of the estimated amount of premium that the contract will produce based on the rate and estimated subject premium. It is often the same as the minimum premium but may be higher or lower. The deposit premium will be adjusted to the higher of the actual developed premium or the minimum premium after the actual subject premium has been determined by audit or reporting of the actual exposures insured during the coverage period.
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MEDICAL,USA: 1. Amount that is paid by a prospective insurance policyholder when an application is made for an insurance policy. It is usually the first month’s estimated premium and is applied toward the actual premium when a statement is sent to the insured. 2. Funds left on deposit with the insurance company for plans subject to premium adjustment. Also called premium deposits .
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UK: 1. Payment under an adjustable policy to an insurer at the inception based on an estimate of fluctuating values, activities or costs that may be adjusted up or down at the end of the term. 2. In non-proportional reinsurance it is the amount paid by a cedant to a reinsurer representing all or part of premiums expected to be earned under the contract. The premium is adjusted at the end of the contract term or periodically within a multi-year contract to reflect actual premiums earned. If the parties work on an adjustable rate basis the deposit premium may be tiated quarterly. nego
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A premium that is payable at the inception (start) of an insurance or reinsurance contract and in respect of which an adjustment premium (usually an additional premium) is due depending on the performance of the contract including, possibly, the amount of the business that is ceded thereunder. Compare minimum premium.
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REFERENCE: See: “Premium, Deposit premium.”
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REINSURANCE: The amount of premium (usually for an excess of loss reinsurance contract), that the ceding company pays to the reinsurer on a periodic basis (usually quarterly) during the term of the contract. This amount is generally determined as a percentage of the estimated amount of premium that the contract will produce based on the rate and estimated subject premium. It is often the same as the minimum premium but may be higher or lower. The deposit premium will be adjusted to the higher of the actual developed premium or the minimum premium after the actual subject premium has been determined.
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REINSURANCE: This arises when the actual premium awaits the outcome of the completion of the treaty or contract period. AT inception the reinsurer therefore receives premium as a deposit subject to its adjustment on completion of treaty or contract period.
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When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll being two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term.